High interest level in this Asian infrastructure play. Our recently concluded non-deal roadshow (NDR) in Singapore drew high levels of interest from institutional fund managers. The Asian infrastructure theme was of relevance, given the unprecedented boom and Yongnam represents a high quality play, given its regional market leading position in structural steel and strutting.

Bullish on resumption of contract wins. In terms of order wins, FY12 was a weak year, with an estimated SGD240m vs recent historical range of SGD300-SGD500m. We believe this represents a tactical decision of not compromising on margins rather than a structural decline. Management expects the resumption of major contract wins in the 2nd half of this year, which we think will be positive stock catalysts.

Free-cash flow to improve substantially. Management agreed with our thesis that free cash flow will improve substantially from this year, with the cessation of a major 5-year capex cycle from FY08-FY12. With a naturally cash-generative business and net capex reducing to SGD25m a year, we estimate free-cash-flow yield of 18% by FY15F. Management believes existing capacity is supportive of revenue up to SGD500m, which would represent 75-80% utilisation.

First step to Myanmar. Yongnam’s consortium has submitted the proposal for a BOT project to expand the existing Yangon International Airport (YIA). Given the urgency of the project, tender results could be known within two months. This is a separate bid to build the new Hanthawaddy International Airport (HIA). With a potent mix of technical strengths and government relationships, we believe this consortium is amongst the front-runners for both projects.

BN victory is positive. Reiterate BUY. With the incumbent government’s victory in Malaysia, the massive MRT project in Kuala Lumpur is likely to progress with minimum delay. We think Yongnam has a very high chance of securing work. We reiterate BUY ahead of 2H13, which is shaping up to be an interesting period with major contract win catalysts in store. Our TP of SGD0.45 is pegged to 10X FY13F PER, with 81% of FY13 revenue backed by orderbook schedule.

Source: Maybank Kim Eng Research - 7 May 2013